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Hedge funds are not for the timid, nor for the middle class. With an initial investment minimum typically running at about $250,000, hedge funds are usually entered to by the wealthy and larger corporations.
Hedge funds are very popular among these groups and for good reason. The Boston Globe reported on October 31 that based on figures provided by the magazine Alpha, “Seventeen Hedge funds managers last year earned more than $100 million.” Needless to say, Hedge funds have great appeal to those who want to earn a great deal of money.
Hedge funds rely on the fact that the more wealthy investors feel that the typical investor won’t have the same type of success with their investments (particularly 401Ks, IRAs and other long term investments) as they do with their own.
Hedge funds depend on the fact that their investors feel that the markets will not flourish and show significant gains in the long run.
Like Futures trading, hedge funds allow investors to either buy long or sell short, depending on their confidence level in the stock market trends. Typically, though, most Hedge funds investors feel that financial trends will be more of the “same old, same old”. Hedge funds investors do not look to (or count on) significant gains in the marketing the future.
However, hedge funds come at a dear price, and most investors can’t afford to participate in this branch of the financial market. Nevertheless, the wealthy continue to aggressive participate in hedge funds, which may ultimately lead to its downfall. Jack Meyer told The Boston Globe “The returns will gradually decline until they get to very uninteresting…Many hedge funds prospered by exploiting inefficiencies in the market. But as more money chases those limited opportunities, profit margins will inevitably shrink. (Boston Globe, 10/31/04).
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